The Advantage of Transparent Instruments of Monetary Policy / Andrew Atkeson, Patrick J. Kehoe.

Format:

Book

Author/Creator:

Atkeson, Andrew.

Contributor:

National Bureau of Economic Research.

Kehoe, Patrick J.

Series:

Working Paper Series (National Bureau of Economic Research) no. w8681.

NBER working paper series no. w8681

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2001.

Summary:

Is the exchange rate or the money growth rate the better instrument of monetary policy? A common argument is that the exchange rate has a natural advantage because it is more transparent: it is easier for the public to monitor than the money growth rate. We formalize this argument in a simple model in which the government chooses which instrument it will use to target inflation. We find that when the government cannot commit to its policies, the greater transparency of the exchange rate makes it easier to provide the government with incentives to pursue good policies. Hence, transparency gives the exchange rate a natural advantage over the money growth rate as the monetary policy instrument.

Notes:

Print version record

December 2001.